Central Banks Bring Scrooge
The Cold Road to a Warm Christmas:
Equity markets were down last week, as the Federal Reserve remained hawkish and the ECB piled on Thursday, December 15th.
A cooler CPI report wasn’t enough to trigger a sustained stock market rally.
Mid-week, the Federal Reserve raised interest rates by 50 bps to the 4.25%-to-4.5% range. That marks slowing after four consecutive 75 basis point moves, extending the sharpest tightening since the early 1980s.
The bigger news, that most mainstream financial outlets ignored, was the European Central Bank’s President Christine Lagarde, albeit late, full-hawk inflation fight pivot. Her early Thursday morning speech and actions set forth a rapid and panicky selloff in European sovereign debt markets.
Her speech was transmitted to our shores by way of higher “real interest rates” and computerized, algorithmic selling in both our stock and bond markets which spilled over into the end of the week: https://www.reuters.com/markets/europe/ecb-slow-rate-hikes-lay-out-plans-drain-cash-2022-12-14/
On the week, the S&P 500 fell 2.1%, with only energy green on the week. As one would expect, Consumer discretionary and technology lagged on the week as long-term rates rose.
U.S. inflation data for November was lower than expected, but the market didn’t hold its strong initial rally.
Headline inflation slowed to 7.1% y/y, while core inflation slowed even more to 6.0% y/y. Core inflation continues to slow on a shorter-term basis as well, with that metric up just 0.2% in the month.
Ex shelter, core goods inflation inflected into “deflationary” level. Yes, you read that correctly. Here’s the chart of the faster 3-month annualized CPI less Shelter costs.
Unfortunately, the jobs market, not consumer goods, is now the Fed’s obsession. In their eyes, services and wage pressure remain persistent. They appear to be watching overstated positive data on that front focusing on the often manipulated and revised Bureau of Labor
Statistics Establishment survey instead of the more historically accurate household series. The household surveys keep saying the labor markets have weakened considerably since last March.
Follow the link to a great breakdown of the discrepancies if you are interested: https://www.zerohedge.com/markets/something-rigged-unexplained-record-27-million-jobs-gap-emerges-broken-payrolls-report
Keeping you Connected to Your Money: 60/40 Portfolio and a Holiday Message:
News or Noise: Oh Canada. Can we learn from their Central Bank?
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